Walmart Is Proving It Can Defend Against Amazon, Says RBC Capital

Wal-Mart Stores Inc. WMT received a sell-side upgrade Wednesday after recent e-commerce investments appear to be paying off and sentiment surrounding the company is starting to shift.

The Analyst

RBC Capital’s Scot Ciccarelli upgraded Walmart from Underperform to Sector Perform from Under Perform and raised the price target from $92 to $96.

The Thesis

One of the biggest concerns surrounding Walmart was the possibility of the company missing out on the e-commerce sales boom, Ciccarelli said. (See Ciccarelli's track record here.) 

After a strategic $3 billion acqui-hire of Jet.com’s e-commerce-savy founder Marc Lore, Wal-Mart is now outpacing Amazon.com, Inc. AMMZN in e-commerce expansion,with a 50 percent growth rate this year, the analyst said. Walmart has turned in $11.5 billion in online sales in the U.S. this year and is expecting 40 percent growth in 2018.

With Amazon’s market cap nearly double Walmart’s, some investors are starting to view that gap as too wide now that Walmart is starting to gain online sales momentum, according to RBC Capital. 

Earlier this month, retail expert Jeff Macke spoke to Benzinga about Walmart closing the gap with Amazon in e-commerce.

“Walmart is taking share in every conceivable place and expanding their product offerings online so customers can shop however they want," Macke said. 

"They are going to continue to take market share. Amazon.com, Inc is not a monopoly, they are just better than everyone else, but the industry will adjust. No one gets to keep all the market share."

RBC Capital analyst Ciccarelli is also recognizing changes the company has made to its brick-and-mortar business, noting a significantly better store environment.

While acknowledging that EBIT is still down over the past four years and earnings growth will likely be small over the near-term, Walmart is playing the long game and receiving praise from the investment community as a result, the analyst said. 

“We believe investors are increasingly viewing WMT as reasonably valued vs. other consumer staples companies and inexpensive relative to AMZN, which could cause a further re-rating of the stock,” Ciccarelli said. 

Price Action

Shares of Walmart traded up 1 percent following the upgrade, at $97.75.

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